Where Is Commercial Real Estate Oversupply?

The national market for commercial real estate is a massive thing, a meta-market encompassing tens of thousands of localities, each with their own economies and histories, subject to their own internal logic — and illogic. When trying to take all of these in as a whole, it’s important to remember that the local stories always loom larger than might be apparent, and that effects are overwhelmingly driven by local needs, wants and preferences.

That said, some indicators are more easily acquired nationally than others. Construction delivery is one. More inventory arriving may influence performance for existing, surrounding inventory, but delivered construction always opens the door (when taken as an aggregate) to the possibility of overbuilding.

With that indicator’s strength in mind, Susan Persin’s piece in REITCafe (registration required) looks at national construction deliveries in the major sectors of CRE and finds where the numbers suggest demand and supply are growing out of balance, tipping toward supply.

In apartments, the high end of the market in NYC and SF get a jaundiced eye from Persin:

[…]REITs with significant investments in markets like Manhattan and San Francisco, such as Avalon Bay (AVB) and Equity Residential (EQR) have cut their revenue forecasts several times this year, citing weakness in these markets.[…]

Persin also noticed some developments in office markets in Dallas, Houston and New York that have the “o” word — overbuilding — rearing its ugly head. Quoting Sam Zell’s recent Bloomberg interview — a chipper affair otherwise — shows Zell concurring about a situation in NYC office that sees new construction as outpacing demand there.